As leisure markets mature, “house brands” start losing shares. What is the significance of branded cannabis flowers in this context? What macro trends are driving the development of the flower category? How does market segmentation affect this category and how do regulations affect state market share?
Cantor Fitzgerald Analyst Pablo Zuanic offered an industry report evaluating the performance of branded flower lines in key markets with a focus on Massachusetts.
House brands lose share in Massachusetts
Zuanic explained how private label shares vary from state to state. Private labels are the property of the retailer. In some cases, the retailer can also be the grower, and in other cases, the retailer can buy them from a grower who sells on a white label basis.
in Massachusetts, The private label share of flowers has increased from 90% in 2019 to 67% in 2022; Over the past two years, private label has grown from 73% in Colorado to 58% in flowers, 6% in California, and 16% in Michigan, where private label has a much smaller share of flowers.
“Private label share remains high in Massachusetts and Colorado, but trends are encouraging. That said the fragmentation in the flower portion (only four brands in MA have a share of 2% or more), Stock turnover as well as value shift are all of concern‘ said Zuanic.
As more stores have opened in the state, many of the owners don’t have their own annexes (a capital-intensive endeavor), says Zuanic, “Brands are winning in retail.”
“The share of private label in MA is still high at almost 70% (in line with CO), but as the market has grown, so has the ‘wholesale brand’ market,” said Zuanic. According to official state data, total cannabis sales in Massachusetts in Q1 2020 were $195 million (11% branded wholesale share) and reached $437 million (31%) in Q2 2022.
“During this period, the wholesale brand market grew from $21 million to $135 million,” said Zuanic. “However, MA’s floral market remains fragmented: we would say that the above is good news for the MSOs as they would normally be able to supply the wholesale floral market (although they do have one 100,000 square foot canopy cap), in contrast to smaller operators.”
But what does this mean for brands?
The wholesale market is quite fragmented
Only four brands achieve more than 2% of the total flower share (11 only more than 1%).
- Cresco’s high bid is 3.5%,
- Generous Farms (independent) 2.2%,
- Green thumb rhythm 2.1%,
- and MariMed’s Natural Heritage 2.1%.
Share of branded wholesale (compared to the total market)
Although this is the part of the market that is growing, “the market still looks fragmented, with 10 brands accounting for more than 4% share,” Zuanic said.
- Cresco’s high bid 10.6%;
- Generous farms 6.8%;
- Green thumb rhythm 6.4%;
- MariMed’s Natural Heritage 6.2%;
- Natural selection 5% (independent);
- INSA 4.6% (independent);
- Ascend’s Simply Herb 4.5%;
- Mile 62 4.5% (independent);
- Curaleaf’s Grassroots 4.4%;
- Tilt’s old pal (4.2%).
Cresco’s Shift to Value
Despite Cresco being the wholesale leader with a >10% share (High Supply brand), Zuanic notes that the company has lost stake in the Cresco brand and gained in High Supply, “for a minimal net stock gain (this may change change once it introduces its higher premium FloraCal brand, now available in IL/MI).” “High Supply is a lower-priced brand; 1/8 ounce of foam bath The High Supply variety costs $35 (Sunnyside Framingham) compared to $45 for the same variety under the Cresco brand,” he explained.
brand sales
Of the top 10 brands (share of branded wholesale in 3Q22), six had a 0% share in Q2 2021 (High Supply; Bountiful Farms, Natural Selections, Simply Herb, Grassroots), which together account for a 31% share. “The other four brands (among the top 10 in Massachusetts in Q3 2022) lost a significant share of brand wholesale,” said Zuanic.
Vertical integration trends
The analyst noted that various operators have said “verticalization” is a trend Pennsylvania, Massachusetts, and other states “as companies try to adapt to increased competition,” which has resulted in lower prices, narrower margins and a slowdown in the market. Zuanic explained that this means retailers will buy their own crops and/or sell more of their own brands through their own stores.
What’s next?
According to Zuanic, as leisure markets mature and more store licenses are granted, “brands should gain a share of private labels in the wholesale flower market. However (…) it remains unclear whether this will lead to brand concentration over time.”
For example, in California in the second quarter of 2022, house brands had only a 6% share of total flower sales, but only six brands have a 2% share or more. During the same period, Colorado house brands had a 58% floral share and only two brands had a floral share above 1.5%.
“While floral brand fragmentation is a concern, we are seeing a trend for private label to lose market share over time: In Michigan, private label rose from 39% in Q1 2020 to 16% in Q2 2022; in the same period, the share of private label flowers in CO fell from 73% to 58%. As of Q2 22, the home brand floral share in other states was as follows: NV 21%; OR 12%; WA 2%,” concluded Zuanic.
Photo by Venti Views on Unsplash.
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